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February 15, 2006

Serious activity on the tax shelter front this week:

- HypoVereinsbank (HVB), a German Bank, entered a plea deal yesterday with the Justice Department that includes a $29.6 million fine and a deferred prosecution agreement for its role in implementing tax shelters with the KPMG accounting firm.

- The New York Times reports that Deutsche Bank is also under investigation for its role in the KPMG shelters.

- The IRS released to Tax Analysts a copy of the settlement and cooperation offer ($ link) reported by the New York Times yesterday. The IRS says that it will make this offer to about 100 "accounting firms, law firms, and banks that the IRS contends have been involved in criminal tax shelters," according to an unnamed IRS spokesman.


The admission of criminal wrongdoing by HVB can't be good news for the 19 former KPMG partners and employees under indictment for their role in the shelters. So far none of the indicted individuals has made a plea deal to cooperate against the others; this may increase the pressure on the defendants to strike a deal.

As Deutsche Bank had many more shelters with KPMG than did HVB, they also could have a real problem. Will they also face criminal charges, or will the government try to also turn them against the individual defendants?

As the New York Times points out, "No court has ever ruled blips or the three other tax shelters in question illegal. Still, the I.R.S. has never considered the shelters valid."


The offer to the other tax shelter promoters could be very bad news for shelter buyers. If they find this an offer they can't refuse, their tax shelter customers will soon get unwelcome certified letters from the IRS; if the shelter promotors cooperate with IRS, it will be very costly for their customers.


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